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Signs of Changes Taking Hold in Electronics Factories in China
By KEITH BRADSHER and CHARLES DUHIGG
CHENGDU, China — One day last summer, Pu Xiaolan was halfway through a shift inspecting iPad cases when she received a beige wooden chair with white stripes and a high, sturdy back.
Gilles Sabrie for The New York Times
At first, Ms. Pu wondered if someone had made a mistake. But when her bosses walked by, they just nodded curtly. So Ms. Pu gently sat down and leaned back. Her body relaxed.
The rumors were true.
When Ms. Pu was hired at this Foxconn plant a year earlier, she received a short, green plastic stool that left her unsupported back so sore that she could barely sleep at night. Eventually, she was promoted to a wooden chair, but the backrest was much too small to lean against. The managers of this 164,000-employee factory, she surmised, believed that comfort encouraged sloth.
But in March, unbeknown to Ms. Pu, a critical meeting had occurred between Foxconn’s top executives and a high-ranking Apple official. The companies had committed themselves to a series of wide-ranging reforms. Foxconn, China’s largest private employer, pledged to sharply curtail workers’ hours and significantly increase wages — reforms that, if fully carried out next year as planned, could create a ripple effect that benefits tens of millions of workers across the electronics industry, employment experts say.
Other reforms were more personal. Protective foam sprouted on low stairwell ceilings inside factories. Automatic shut-off devices appeared on whirring machines. Ms. Pu got her chair. This autumn, she even heard that some workers had received cushioned seats.
The changes also extend to California, where Apple is based. Apple, the electronics industry’s behemoth, in the last year has tripled its corporate social responsibility staff, has re-evaluated how it works with manufacturers, has asked competitors to help curb excessive overtime in China and has reached out to advocacy groups it once rebuffed.
Executives at companies like Hewlett-Packard and Intel say those shifts have convinced many electronics companies that they must also overhaul how they interact with foreign plants and workers — often at a cost to their bottom lines, though, analysts say, probably not so much as to affect consumer prices. As Apple and Foxconn became fodder for “Saturday Night Live” and questions during presidential debates, device designers and manufacturers concluded the industry’s reputation was at risk.
“The days of easy globalization are done,” said an Apple executive who, like many people interviewed for this article, requested anonymity because of confidentiality agreements. “We know that we have to get into the muck now.”
Even with these reforms, chronic problems remain. Many laborers still work illegal overtime and some employees’ safety remains at risk, according to interviews and reports published by advocacy organizations.
But the shifts under way in China may prove as transformative to global manufacturing as the iPhone was to consumer technology, say officials at over a dozen electronics companies, worker advocates and even longtime factory critics.
“This is on the front burner for everyone now,” said Gary Niekerk, a director of corporate social responsibility at Intel, which manufactures semiconductors in China. No one inside Intel “wants to end up in a factory that treats people badly, that ends up on the front page.”
The durability of many transformations, however, depends on where Apple, Foxconn and overseas workers go from here. Interviews with more than 70 Foxconn employees in multiple cities indicate a shift among the people on iPad and iPhone assembly lines. The once-anonymous millions assembling the world’s devices are drawing lessons from the changes occurring around them.
As summer turned to autumn and then winter, Ms. Pu began to sign up for Foxconn’s newly offered courses in knitting and sketching. At 25 and unmarried, she already felt old. But she decided that she should view her high-backed chair as a sign. China’s migrant workers are, in a sense, the nation’s boldest risk-takers, transforming entire industries by leaving their villages for far-off factories to power a manufacturing engine that spans the globe.
Ms. Pu had always felt brave, and as this year progressed and conditions inside her factory improved, she became convinced that a better life was within reach. Her parents had told her that she was free to choose any husband, as long as he was from Sichuan. Then she found someone who seemed ideal, except that he came from another province.
Reclining in her new seat, she decided to ignore her family’s demands, she said. The couple are seeing each other.
“There was a change this year,” she said. “I’m realizing my value.”
An Inspector’s Push
“This is a disgrace!” shouted Terry Gou, founder and chairman of Foxconn, the world’s largest electronics manufacturer and Apple’s most important industrial partner.
It was March of this year and Mr. Gou — seen by activists as a longtime obstacle to improving conditions inside his factories — was meeting with his top deputies in Shenzhen, China. In 2011, The New York Times began sending Apple and Foxconn extensive questions about working conditions in factories manufacturing Apple products.The resulting articles in late January detailed problems ranging from excessive overtime and under-age workers to sometimes deadly hazards, such as workers’ using a poisonous chemical to clean iPhone screens at another manufacturer, and an explosion in Ms. Pu’s Foxconn plant that killed four workers.
In January, Apple publicly released the names of many of its suppliers for the first time. Additionally, the company made the unusual move of joining the Fair Labor Association, one of the largest workplace monitoring groups. Auditors from that association were soon inspecting Apple’s partners in China, starting with Foxconn.
Now, Mr. Gou was learning the results of those examinations. Foxconn was still failing to stop illegal overtime, the association’s lead inspector told Mr. Gou and his lieutenants, according to multiple people with knowledge of the meeting. The company was failing to keep student interns off night shifts. Foxconn had not put sufficient safety policies into practice and had exposed potentially hundreds of thousands of workers to at least 43 violations of Chinese laws and regulations.
“The world is watching!” Mr. Gou yelled, according to multiple people. “We are going to fix this, right here!”
But the inspector was not done.
He turned to the only Apple executive in the room, the senior vice president for operations, Jeff Williams. Apple needed to change as well, the inspector said. Apple, to its credit, had been working for years to improve conditions in overseas factories, but the company was treating such problems too much like engineering puzzles, the inspector said.
“Long-term solutions require a messier, more human approach,” that inspector, Auret van Heerden of the Fair Labor Association, told Mr. Williams. Instead of concentrating on writing more policies, Apple needed to listen better to workers’ complaints and advocacy groups’ recommendations.
Some of those suggestions surprised Mr. Williams, say people who worked with him. Since 2007, Apple had built one of the most extensive auditing programs in the electronics industry, inspecting over 800 facilities. It was a point of pride for both Mr. Williams and the company’s top leadership.
When Mr. Williams, who declined to comment for this article, returned from that March meeting to California, changes began. Among them, say people with firsthand knowledge, was the hiring of roughly 30 professionals into Apple’s social responsibility unit in the last year, which tripled the size of that division and brought high-profile corporate activists into the company. Two widely respected former Apple executives — Jacky Haynes and Bob Bainbridge — were recruited back to help lead the unit, reporting ultimately to Mr. Williams and the chief executive, Timothy D. Cook.
“Everyone knows Bob and Jacky,” said a former Apple executive. “It sends a message that Jeff and Tim expect everyone to get on board.”
Moreover, the company has reached out to advocates it once rebuffed. In late April, Apple allowed the first in a series of pollution audits by Ma Jun, a Chinese environmental advocate who works closely with dozens of other multinationals but whom Apple had refused to speak with until last year, according to Mr. Ma. In September, the company joined the Sustainable Trade Initiative, an advocacy group based in the Netherlands.
“They know now if they don’t participate, it is the same as saying nothing,” Mr. Ma said.
Foxconn has also shifted. After the meeting with the Fair Labor Association, Foxconn announced that by July 2013, no employee would be allowed to work more than an average of 49 hours a week — the limit set by Chinese law. Previously, some Foxconn employees worked schedules that approached 100 hours a week. No other major manufacturer has pledged to abide by China’s work-hour laws in such a public manner. Foxconn, which is based in Taiwan, also promised to increase wages, so employees’ total pay would not decline despite fewer hours — the equivalent of a 50 percent raise for many workers, analysts say.
With 1.4 million employees in China — the most of any private company — Foxconn is setting a bar that all manufacturers will be judged against, say executives at other companies.
“When the largest company raises wages and cuts hours, it forces every other factory to do the same thing whether they want to or not,” said Tony Prophet, a senior vice president at Hewlett-Packard. “A firestorm has started, and these companies are in the glare now. They have to improve to compete. It’s a huge change from just 18 months ago.”
Foxconn, in a statement, said that it was “committed to ensuring that we provide a safe and healthy working environment for all our employees,” and that the company had regularly increased wages over the last three years.
Secrecy and Transparency
Despite those reforms, however, worker advocates inside Apple and with outside groups say the electronics industry’s problems will not genuinely diminish until Apple — the world’s most valuable company — starts filling a public leadership role similar to that of companies in other industries with overseas problems, like Nike in footwear manufacturing and Patagonia in apparel.
Such public leadership and transparency can run counter to a culture of secrecy that pervades Apple. Employees often don’t know what their lunch companions or next-door office mates are working on. This secrecy has helped Apple stay ahead of competitors, but has been a problem when it spills into the broader corporate culture, say past executives.
“It’s remarkable how the paranoia in Silicon Valley prevents companies from cooperating, even on something like corporate social responsibility,” said Mr. van Heerden of the Fair Labor Association, who added that his work with Apple, Foxconn and other companies was confidential.
While Apple is the only electronics company to join Mr. van Heerden’s monitoring group, it has not opened up in some other ways. Apple has declined to release audit reports on the hundreds of facilities the company has inspected. After two factory explosions last year, Apple did not share investigative reports with other companies so they might avoid similar accidents. Apple does not, in general, publicly identify terminated suppliers or factories that have violated Apple’s supplier code of conduct.
Moreover, Apple’s growing team of safety and corporate responsibility experts are typically prohibited from sharing their findings at conferences, in academic journals or other forums where their insights could be absorbed by other companies, according to former members of that team.
“Apple is scared that if we open the kimono too wide, it will ruin what has made Apple special,” said one former company official. “But that’s the only way to really improve things. If you don’t share what you know, then no one else gets a chance to learn from your mistakes and discoveries.”
Apple declined requests for interviews. In a statement, it said the company embraced its “unique position to lead” and had taken working conditions very seriously for a long time. “No one in our industry is doing as much as we are, in as many places, touching as many people as we do. Through years of hard work and steadfast commitment, we have set workplace, dormitory and safety standards, sought help from the world’s leading experts, and established groundbreaking educational programs for workers.”
“We have been upfront about the challenges we face and are attacking issues aggressively,” the statement continues. “We believe deeply in transparency and have demonstrated this through reporting our shortcomings and exposing violations.”
At a conference in May, Mr. Cook, the chief executive, said that the company was “going to double down on secrecy on products.”
He added, however, that “there’s going to be other things that we do that we’re going to be the most transparent company in the world on. Like social change. Supplier responsibility. On what we’re doing for the environment. We’re going to be the most transparent, because we think that transparency is so important in these areas, and that if we are, other people will copy what we’re doing.”
This year, Apple began publishing monthly summaries of suppliers’ compliance with overtime standards. In October, Apple hosted other technology companies for a private discussion on responses to excessive work hours overseas. While Apple’s annual supplier responsibility reports do not contain details on specific factories, they are still among the most thorough in the electronics business.
But Apple has not sought the high-profile leadership opportunities that have set off transformations in other industries. Nike, for instance, has convened public meetings of labor, human rights, environmental and business leaders to discuss how to improve overseas factories. The clothing retailer Gap Inc. has invited outside organizations to critique its purchasing practices and publish their findings. Patagonia shares its factory audits with competitors and has been a vocal supporter of a centralized audit report clearinghouse that lets companies share information.
“That’s the standard Apple has to meet,” said a former Apple executive. “That’s how a leader transforms an industry.”
A More Human Touch
Almost 200 miles southeast of the factory where Ms. Pu received her new chair is another plant that is experimenting with improving workers’ quality of life — and shows the trade-offs of such gains.
The factory, in Chongqing, makes computers for Hewlett-Packard, a company with little of Apple’s glamour. It is operated by Quanta, a little-known Taiwanese manufacturer.
Inside the plant, amid thousands of workers in bright white uniforms, are occasional flashes of pink worn by people like Zhang Xuemei, a bubbly 19-year-old with glinting earrings whose sole job is to chat with co-workers.
For eight hours a day, Ms. Zhang collects complaints about the factory’s free meals and dorms. She listens to workers who are divorcing, homesick or arguing with managers. When she finds someone suffering, she refers them to the company’s full-time doctor or professional counselors.
Quanta’s 10-story dormitories feel like a college campus. There is a free movie theater, television rooms, a large martial arts gym, two spacious karaoke bars, a huge cafeteria and an aerobics hall playing a Chinese remix of “Gangnam Style.”
Neither Quanta nor Hewlett-Packard claims it has solved every labor woe. And the amenities are partly selfish: one of the biggest problems for Chinese factories is that workers are constantly leaving. Hewlett-Packard hopes that by improving living conditions, turnover and training costs will fall.
“You can tweak the line and get one second out of the process, but if the people turn over every three months, think what that does to your quality,” said Mr. Prophet, the Hewlett-Packard executive.
Last year, a worker advocacy group criticized another Quanta plant, in Shanghai, for harsh working conditions found at many factories, including extensive overtime and poor food. In Chongqing, Hewlett-Packard has agreed to pay slightly higher prices initially so that Quanta can offer workers a better quality of life. Such payments are the price all companies should bear for more humane factories, say Hewlett-Packard executives.
There are costs for workers, too. Quanta’s employees earn slightly less than their peers at Foxconn. What’s more, Quanta’s emphasis on hours that are easier on employees means they are prohibited from overtime shifts that advocates say are abusive, but which some workers insist they want.
Zhang Jiang, a slim 21-year-old, previously assembled laptop computers at another company in Shanghai. Each week, he sent the bulk of his pay home so his younger brother could stay in school. Overtime was like a blessing, he said.
But last summer, fed up with the 25-hour train trip to see his family, Mr. Zhang moved to Chongqing and joined Quanta. He enjoys the better facilities and dorms. He frequently visits his parents’ home. But his take-home pay has fallen by nearly a third and the thought that his brother may have to drop out of school so he can help the family gnaws at Mr. Zhang. Instead of working in the factory each night, he spends hours playing an online game, Dungeon Fighter.
“I’d like to work 80 hours a week,” he said.
Change Is Hard
Hewlett-Packard also makes products at Foxconn factories, as does almost every major electronics firm. Foxconn, more than any other company, has proved that Chinese plants can deliver obsessive attention to quality. The company has helped make China into a manufacturing juggernaut through strict discipline that is visible everywhere, even in the salutes managers give visiting executives.
That discipline, say former Apple executives, is one reason every iPhone is put together so well.
It is also one reason the reforms enjoyed by employees like Ms. Pu — who received the new chair — have not spread quickly. Though Foxconn has trained managers to treat employees more gently, foremen still use profanity and intimidation, workers say.
“The managers speak in a manner that often feels like a threat,” said Mou Kezhang, who works in iPad quality assurance at the Foxconn factory in Chengdu.
Foxconn, in a statement, said it had “always been among the fastest to adopt change and reform.” Its policy, the company said, is “to treat employees with respect and if we find any transgressions, they are immediately investigated and addressed.”
In the last two years, Hewlett-Packard has increasingly moved its manufacturing to Quanta. Foxconn has not fought particularly hard to win that business back, according to Hewlett-Packard officials. Often, the quality-of-life improvements requested by Western electronics executives come at the cost of a supplier’s bottom line. Even within Apple, tensions erupt because executives often believe improvements should be financed by suppliers, whereas suppliers say changes are not feasible unless Apple pays more.
And ultimately, some workers themselves resist reforms. In March, when Foxconn announced that workers’ hours would be reduced to China’s legal limits, employees began complaining. “Absolutely I’d like to do overtime to work more than 60 hours, but now there’s a ceiling on it,” said Ma Changqiao, a 23-year-old at Foxconn’s Chongqing factory.
Change is hard, say officials at multiple companies. Reforming labor conditions in a country as large as China will probably take decades, and labor abuses are an ever-evolving problem without just one right answer.
In September, six months after Foxconn agreed to a Fair Labor Association request for new internship rules, two worker advocacy groups found that students in nonmanufacturing courses were being improperly forced to work at a Foxconn plant in north central China. One student studying preschool education said she was prohibited from quitting her internship and was compelled to work night shifts. Afterward, Mr. Gou of Foxconn issued apologies to wronged interns and the responsible official was fired.
Today, Foxconn’s internship program continues — a testament, executives say, to Foxconn’s commitment to a program that can benefit thousands of students, even when making improvements is hard and stumbles are inevitable. Changing the company’s culture is slow going. But the needed reforms, executives at Apple and Foxconn hope and believe, are falling into place.
- Signs of Changes Taking Hold in Electronics Factories in China – NYTimes.com (mikedaisey.blogspot.com)
- Signs of Changes Taking Hold in Electronics Factories in China (adafruit.com)
- Working Conditions in China: Supply and Demand (marginalrevolution.com)
- Conditions at Apple suppliers’ factories in China improving (macdailynews.com)
- Can the N.Y. Times ride Apple all the way to a Pulitzer? (tech.fortune.cnn.com)
- News Summary: Factory fire kills 14 in China (miamiherald.com)
- Improvements at Foxconn’s China factory (tuaw.com)
- The Learning Network Blog: Lesson Plan | Ten Ways to Investigate Transition in China (learning.blogs.nytimes.com)
- Foxconn’s Apple factories start to show signs of improved working conditions (theverge.com)
- Jaguar to build factory in China in joint venture (miamiherald.com)
How Hurricane Sandy forced NYC to reconnect with pay phones
With cell phone service knocked out and no electricity in many parts of New York City in the wake of superstorm Sandy, people are waiting in lines to use a relic from the past – the pay phone.
“I didn’t even know they were working,” New York City resident Leslie Koch said about the public pay phones in an interview with the Wall Street Journal.
Earlier this week Koch celebrated her blast with the past when she used the antiquated device by taking a picture of it and posting it to her Twitter account with a caption that said, “This is called a pay phone. Used one today to call my mom from #NYC.”
Koch is one of many New Yorkers who had been walking past pay phones on a daily basis and didn’t pay them any attention.
“It’s funny what’s hiding in plain sight,” Jordan Spak, a 32-year-old television marketer told theJournal. “It’s invisible, but when you need it, it’s there.”
In the storm’s aftermath, throngs of residents are using the old-fashioned contraptions as a last resort to connect to family and friends, because millions of people lost power during the storm rendering their cellphones, iPads, computers and other state-of-the-art technology useless.
Alison Caporimo, 24, who lives in Manhattan, told the Journal she didn’t even know how to operate a public pay phone before Tuesday admitting, “I lost a lot of coins” while trying to figure out how to use the outdated machine.
Although many New Yorkers are dependent on modern gadgetry, during times of distress, such as after the 11 September terrorist attacks, the city has become reliant on pay phones that usually stay in service even during flooding. In fact, one of the most daunting challenges with using the devices during an emergency is keeping them free of coin overloads, the Journal reported.
“During disasters, we sometimes have to empty them every day,” Thomas Keane, chief executive officer of Pacific Telemanagement Services, said. “It takes 300 to 400 calls a day for that to happen.”
The dependency on the retro technology this week comes just months after New York announced a pilot programme to convert several pay phones around the city into free Wi-Fi hotspots.
There are about 12,000 public pay phones in New York City, 27,000 fewer than 20 years ago, according to the Department of Information Technology and Telecommunications, which regulates the city’s pay phones.
- New Yorkers reconnect with Pay Phones (worldbulletin.net)
- New Yorkers reconnect with pay phones in storm’s aftermath (vancouverdesi.com)
- Pay Phones Are Suddenly Important Again Because Of Sandy (wnyc.org)
- The Brief Renaissance of the Pay Phone (theatlanticwire.com)
- After Sandy, Wired New Yorkers Get Reconnected With Pay Phones (allthingsd.com)
- New York’s Poor Weather Friend (andrewsullivan.thedailybeast.com)
- Photo Of The Day (joemygod.blogspot.com)
- In New York, the Pay Phone Makes a Comeback, However Briefly (theatlanticcities.com)
- Did You Think Pay Phones Were Just Public Toilets Before Sandy? (updates.jezebel.com)
- Is It Time To Commit To Ongoing Payphone Availability? (mobile.slashdot.org)
Apple is now the most valuable company of all time
@CNNMoneyTech August 20, 2012: 12:16 PM ET
NEW YORK (CNNMoney) — As Apple’s stock rose to new high on Monday, the technology giant set another record: It became the most valuable public company in history.
Apple’s market value — the price of its stock multiplied by the number of outstanding shares — hit $623 billion in intraday trading. That eclipsed the previous record of $618.9 billion set by Microsoft on Dec. 30, 1999, at the height of the dot-com bubble, according to Howard Silverblatt, S&P’s senior index analyst.
Apple shares hit a new record of $664.74 per share. The anticipated September launch of the new iPhone, coupled with rumors of a smaller iPad and a more feature-rich Apple TV have lifted the stock in recent weeks.
It’s a stunning achievement for a company that was a struggling also-ran when Microsoft was setting records in the late 1990s. Apple was valued at less than $10 billion as recently as 2004, and at $100 billion just three years ago.
Since 2007, however, AAPL has been an unstoppable force. Its iPhone business alone now brings in more money than MSFT . Even the iPad, which was intended to be a gap-filling product between the iPhone and the Macintosh, has itself become a multi-billion dollar product for Apple.
Apple is on pace to be the world’s largest technology company in terms of sales by the end of the year, and it’s among the most profitable companies in the world. In the last three months of 2011, Apple made $13 billion – second only to XOM record-setting $14.8 billion quarter from the fall of 2008, when oil prices were at an all-time high.
The company’s lightning-quick growth shows no signs of subsiding. With rumors of new gadgets on the horizon, Apple has crossed the $400 billion,$500 billion and $600 billion marks — all in 2012 — as the stock has soared 64% this year.
Despite the fast growth, some say that the company is actually undervalued, since its stock gains haven’t kept pace with its earnings. Trading at 15 times this year’s earnings forecast, it has a price-to-earnings ratio far below that of some tech stocks, including FB, GRPN and even ZNGA, whose stock has plunged sharply.
Apple still has one last hurdle to climb: Microsoft still holds the record for most valuable company on the stock market if inflation is taken into account. In 2012 dollars, Microsoft’s all-time-high would have amounted to $851 billion.
Apple has quite a way to go before it hits that mark. Its stock would have to reach $908 per share.
- Apple is now the most valuable company of all time (antiguaobserver.com)
- Apple is now the most valuable company of all time (fox6now.com)
- Apple is now the most valuable company of all time (money.cnn.com)
- Apple Is Now the Most Valuable Company of All Time (Kind Of) (theatlanticwire.com)
- At $622B, Apple becomes all-time most valuable company (news.cnet.com)
- Apple now the most valuable public company ever, sort of (intomobile.com)
- Apple now most valuable company ever (abcactionnews.com)
- Apple is now the most valuable company on Earth. Surpasses the record Microsoft set in 1999! (the4cast.com)
- Apple becomes most valuable public company in history (panarmenian.net)
- Apple’s stock soars to new all-time high (money.cnn.com)
Daily Report: For Tablet, Microsoft Breaks Away From Partners
SEATTLE — A move by Apple to secure high-quality aluminum from Australia foriPad cases was one of many incidents that gradually convinced Microsoft that it needed to create its own tablet computer,Nick Wingfield reports in Monday’s New York Times.
The announcement of the Microsoft tablet, called Surface, was the most striking evidence yet of the friction between Microsoft and its partners on the hardware side of the PC business. It is the first time in Microsoft’s almost four-decade history that the company will sell its own computer hardware, competing directly with the PC makers that are the biggest customers for the Windows operating system.
For hardware makers, the PC market has long been a struggle because Microsoft and Intel, maker of the microprocessors that power most computers, have traditionally extracted most of the spoils from the industry, leaving slim profits for the companies that make them. Manufacturers pay hefty fees to license Windows from Microsoft, putting pressure on them to make computers as cheaply as possible using commodity parts.
That, in turn, has limited their ability to take the kinds of risks on hardware innovation that have helped define the iPad. Furthermore, with the iPad, Apple has proved that there are significant advantages to designing hardware and software together. When separate companies, each with its own priorities, handle those chores, integrating hardware and software can be more challenging.
“You’ve got this sclerotic partnership structure where the partners don’t have any oxygen to be innovative,” said Lou Mazzucchelli, an entrepreneur in residence for a venture capital fund backed by the state of Rhode Island and a former technology analyst. “I believe Microsoft was painted into a corner. If they didn’t move soon, Apple would have so much of a lead, it would be almost impossible to catch them.”
- The Surface: Celebrate the Competition, Question the Premise – NYTimes.com (mbcalyn.com)
- Daily Report: For Tablet, Microsoft Breaks Away From Partners (bits.blogs.nytimes.com)
- NYTimes: Microsoft has lost “faith” in their hardware partners (intomobile.com)
- Surface: A desperate move to catch Apple, says report – CNET (news.cnet.com)
- How Apple pushed Microsoft to create its ‘Surface’ tablets (macdailynews.com)
- Microsoft’s Surface Tablets: What Experts are Saying (pcworld.com)
- How Apple’s Decision To Buy Aluminum From Australia Forced Microsoft To Build Its Own Tablet (AAPL, MSFT) (businessinsider.com)
- Microsoft Hatched Surface After Watching Partners Fail to Compete with iPad (dailytech.com)
- Surface Detail: Microsoft’s Tablets Are Too Big To Fail (slashgear.com)
- Why Microsoft Had To Take Hardware Into Its Own Hands To Compete With The iPad (cultofmac.com)
Iranian-American woman says Apple refused to sell her an iPad
N.J. resident Jim Otun reads a dua from the Quran on his iPad (Rich Schultz/AP)
19-year-old Sahar Sabet says an Apple Store in Georgia refused to sell her an iPad after a store representative overheard her speaking in Farsi.
“Very hurtful, very embarrassing. I actually walked out in tears,” Sabet told WSBTV about her experience.
When a reporter from the station returned to the same Apple Store with Sabet, the employee once again reiterated that it is Apple company policy to not sell products to anyone from Iran. The WSBTV reporter recorded video of the exchange on her phone.
Sabet is a U.S. citizen and a student at the University of Georgia but the iPad was to be a gift for a cousin living in Iran.
“When we said ‘Farsi, I’m from Iran,’ he said, ‘I just can’t sell this to you. Our countries have bad relations,’” Sabet said.
The employee showed them Apple’s corporate policy on export sales, which reads:
The U.S. holds complete embargoes against Cuba, Iran, North Korea, Sudan, and Syria
The exportation, reexportation, sale or supply, directly or indirectly, from the United States, or by a U.S. person wherever located, of any Apple goods, software, technology (including technical data), or services to any of these countries is strictly prohibited without prior authorization by the U.S. Government. This prohibition also applies to any Apple owned subsidiary or any subsidiary employee worldwide.
The Council on American-Islamic Relations (CAIR) released a statement after the incident, calling on Apple to change its corporate policy on sales to Iran.
“Apple must revise its policies to ensure that customers do not face discriminatory treatment based on their religion, ethnicity or national origin,” said CAIR National Executive Director Nihad Awad. “If the actions of these Apple employees reflected company policy, that policy must be changed and all employees retrained.”
Sabet says she later called Apple’s corporate customer relations, where an employee reportedly apologized and told her she could buy an iPad online.
- Iranian-American woman says Apple refused to sell her an iPad (theuglytruth.wordpress.com)
- Are Iranians banned from buying iPads? (bbc.co.uk)
- Apple Store Refuses To Sell Popular Devices To Iranian Americans (thinkprogress.org)
- Customer: Apple Store denied me iPad for speaking Farsi (wsbtv.com)
- iRacism: Apple refuses to sell products to US Persians (rt.com)
- Apple Store employees getting a little overzealous with Iranian export restrictions, borders on racial profiling [Video] (9to5mac.com)
- No iPad for teens speaking Farsi in Apple store (nydailynews.com)
- Iranian Woman Denied iPad for Speaking Farsi in the Apple Store (news.softpedia.com)
- Apple store refused to sell Iranian-American woman iPad (blacklistednews.com)
- Apple Store Refused to Sell iPad to Farsi-Speaking Customers [REPORT] (mashable.com)
JUN 20 2012
As previously noted, Apple has overtaken Microsoft (and Google) in operating margin percentage. This is an astonishing statistic as Apple is still largely perceived to be a “hardware company” while Microsoft is a “software company” and Google is a “services company.”
To suggest that “hardware” could be more operationally profitable than either software or services is akin to heresy in technology analysis. This reversal is newsworthy indeed. However, even the most casual observer would note that Apple does not derive its market power from hardware alone. It is, in fact, an integrated hardware, software and services company (with a few more roles besides.)
So the emergent successful business architecture in this technologically transitional period is of integration and completeness of solutions.
This shift explains at least at a conceptual level Microsoft’s tectonic Surface shift.
But what about another point of view? What does integration mean for Microsoft’s income, cost and profit structure? Is integration self-disruptive to Microsoft?
Here’s a reminder of Microsoft’s revenues and operating income by division:
The challenge of devices for Microsoft is that the licensing of software for devices is very difficult to sell.
In 2011 Microsoft received about $18.7 billion in Windows revenues and $23 billion in Office revenues. The chart shows that this is a fairly steady growth business. According to Gartner, in 2011 there were about 336 million Windows PCs sold and that this too is a fairly stable and mature business.
If we simply divide revenues by PCs sold we get about $55 Windows revenues per PC and $68 of Office revenues per PC sold . The total income for Microsoft per PC sold is therefore about $123. If we divide operating income by PCs as well we get $35 per Windows license and $43 per Office license. That’s a total of $78 of operating profit per PC.
Now let’s think about a post-PC future exemplified by the iPad. Apple sells the iPad with a nearly 33% margin but at a higher average price than Microsoft’s software bundle. Apple gives away the software (and apps are very cheap) but it still gains $195 in operating profit per iPad sold.
Fine, you say, but Microsoft make up for it in volume. Well, that’s a problem. The tablet volumes are expanding very quickly and are on track to overtake traditional PCs while traditional PCs are likely to be disrupted and decline.
So Microsoft faces a dilemma. Their business model of expensive software on cheap hardware is not sustainable. The future is nearly free software integrated into moderately priced hardware.
For Microsoft to maintain their profitability, they have to find a way of obtaining $80 of profit per device. Under the current structure, device makers will not pay $55 per Windows license per device and users will not spend $68 per Office bundle per tablet. Price competition with Android tablets which have no software licensing costs and with iPad which has very cheap software means that a $300 tablet with a $68 software bill will not be competitive or profitable.
However, if Microsoft can sell a $400 (on average) device bundled with its software, and is able to get 20% margins then Microsoft is back to its $80 profit per device sold. This, I believe, is a large part of the practical motivation behind the Surface product.
The challenge for Microsoft therefore becomes to build hundreds of millions of these devices. Every year. Sounds like they need a Tim Cook to run it.
1. Microsoft accounts for revenues using deferrals due to Software Assurance pre-payment models for many corporate customers so this figure is not a precise value for each license sold.
- Who will be Microsoft’s Tim Cook? (asymco.com)
- Why Microsoft is building its own tablet computers (tech.fortune.cnn.com)
- Wouldn’t it be poetic justice if with Surface, a Microsoft solution costs more than Apple? (venturebeat.com)
- Microsoft Surface and the Future of Software (redmonk.com)
- Microsoft has finally realised it needs to copy Apple – but does it have what it takes? (newstatesman.com)
- Microsoft Surface tablet: what the analysts say (guardian.co.uk)
- MICROSOFT: Okay, Fine, We Admit It–Apple Was Right (businessinsider.com)
- With Surface, Microsoft Stands Little Chance of Competing With Apple in the iPad Market (minyanville.com)
- Apple’s revolutionary iPad vs. Microsoft’s anti-tablet ‘Surface’ (macdailynews.com)
- Microsoft’s new impact at the tablet markets (thepekka.wordpress.com)